The U.S. District Court for the District of Colorado followed a trend of decisions concluding that a plaintiff need not have provided the SEC with information regarding alleged federal securities law violations to pursue a retaliation claim under Dodd-Frank, but it ultimately dismissed the claim for want of causation.  Genberg v. Porter, No. 11-cv-02434, 2013 U.S. Dist. LEXIS 41302 (D. Colo. March 25, 2013). As such, this ruling is a mixed bag for employers.

Background

Plaintiff Carl Genberg, a former Senior Vice President for Research and Development at Ceragenix Corporation and Ceragenix Pharmaceuticals, Inc., filed suit against several individuals alleging violations under the Dodd-Frank whistleblower provisions. He claimed to have been discharged in retaliation for reporting violations of Delaware corporate law and SEC proxy rules to management. Defendants moved to dismiss pursuant to Rule 12(b)(6), arguing that Plaintiff was not a protected whistleblower under Dodd-Frank because he had not provided such information to the SEC.

The Court’s Ruling

As an initial matter, the court recognized that, under Dodd-Frank, “[t]he term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” 15 U.S.C. § 78u-6(a)(6) (emphasis added). Thus, the court stated that the “plain language [of Section 78u-6(a)(6)] mandates that in order to qualify as a whistleblower, one must provide information to the SEC regarding an alleged federal securities law violation.” Accordingly, Defendants argued that Plaintiff’s claim failed because he did not provide the SEC with such information.

Plaintiff responded that he qualified as a whistleblower under the language in Section 78u-6(h)(1)(A)(iii) of Dodd-Frank, which protects those persons who do not provide information to the SEC, so long as they make:

disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78j-1(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

Siding with Plaintiff on this issue, the court concluded that “this DFA provision is in direct conflict with [§ 78u-6(a)(6)’s] definition of a whistleblower because it provides protection to persons who have not disclosed information to the SEC” and “agree[d] with the other federal district courts that § 78u-6(h)(1)(A)(iii) should be interpreted as an exception to the whistleblower definition found in § 78u-6(a)(6).”

Still, the court rejected the retaliation claim on causation grounds. It agreed that Defendants’ non-authorization of post-termination payments was the result of limitations imposed due to bankruptcy proceedings—and not retaliation for Plaintiff’s disclosing alleged violations of federal securities laws. The court agreed with Defendants, finding that the Bankruptcy Code does not allow a payment of this type and, therefore, constituted a valid defense to the alleged non-authorization of payment.

Implications

Although the court ultimately rejected the Dodd-Frank retaliation claim on causation grounds, its embrace of the broader definition for the term “whistleblower” under Dodd-Frank continues a troubling trend, which we discussed in greater detail here.  This string of employee-favorable rulings intensifies the pressure employers already face to step up internal compliance programs and focus closely on demonstrating any adverse employment actions against whistleblowers were based on non-retaliatory factors.